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Echo, Inc., purchased 10 percent of ProForm Corporation on January 1, 2017, for $345,000 and accounted...

Echo, Inc., purchased 10 percent of ProForm Corporation on January 1, 2017, for $345,000 and
accounted for the investment using the fair-value method. Echo acquires an additional 15 percent of
ProForm on January 1, 2018, for $580,000. The equity method of accounting is now appropriate for
this investment. No intra-entity sales have occurred.

i. On financial statements for 2018, what amounts are included in Echo’s Investment in ProForm
account? What amounts are included in Echo’s Equity in Income of ProForm account?

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Answer #1

Ans: In investment account it will show the costs to obtain ownership of ProForm.

For 2017, it will includes equity accrual equals to 10 % of Investee income and 25% for 2018 will be included .The investment balance will be reduced by 10 % of any porform dividends during 2017 and 25 % for 2018 investments

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